Are Car Subscriptions, Novated Leases and Salary Packaging Worth It?

Business, Cars
March 31, 2026

Are Car Subscriptions, Novated Leases and Salary Packaging Worth It?

By Tony Mantos

Australians are spending more on getting around than ever, and the way people finance their cars is quietly shifting. New vehicle sales fell 4.5 per cent in February 2026 compared to the year prior. Meanwhile, searches for car subscription services spiked 300 per cent in 2025 according to Google Trends data. Novated leases, once the province of corporate salary packages and public sector HR handbooks, are getting a second look from a much wider audience thanks to the federal government’s ongoing electric vehicle tax exemption.

The three options on the table (car subscriptions, novated leases, and broader salary packaging arrangements) sound like they might be solving the same problem. In some ways they are. But they work differently, suit different situations, and carry different risks. Here is what each actually involves, and who is likely to come out ahead.

What Is a Car Subscription, and Is It Actually Worth the Cost?

A car subscription is a single recurring payment that covers the vehicle, insurance, registration, maintenance and roadside assistance, with no long-term ownership commitment.

Think of it like a phone plan, except the device is a car and the monthly fee is considerably larger. Providers including Karmo, Carbar and Carly operate across Melbourne and Sydney, with some available nationally. HelloCars serves Sydney and advertises starting prices from $149 per week, while Karmo positions itself as Australia’s largest subscription provider with a fleet of over 200 vehicles.

The all-in nature of the pricing is the main selling point. You know what you’re paying each week. Tyres, servicing, rego and comprehensive insurance are typically bundled in, meaning no nasty surprises when the car needs new brakes at 40,000 kilometres.

What Subscriptions Are Good For

Short-term flexibility is where subscriptions genuinely shine. If you need a car for a few months, are new to Australia on a work visa, or want to avoid the depreciation hit of buying a new vehicle outright, a subscription can make sense. Providers like Carly accept P2 licence holders and overseas driving licences, which makes them accessible to people who would struggle to get conventional finance.

What Subscriptions Are Not Good For

Long-term, the numbers tend to work against you. Subscription pricing reflects the convenience premium and the provider’s costs, and over two or more years you are likely paying more per kilometre than you would under a loan or lease. Most providers also set weekly kilometre allowances, with Karmo’s standard plan covering 385km per week (roughly 20,000km annually). Exceed the average over your contract period and you’ll pay an excess fee of $0.30 per kilometre. That adds up faster than you’d expect on a long commute.

Geographic coverage is another limitation. Most providers currently operate in Melbourne and Sydney, with patchy availability elsewhere. If you’re outside a major city, your options may be limited or non-existent.

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How Does a Novated Lease Work?

A novated lease is a three-way arrangement between you, your employer and a finance provider, where your car payments come out of your pre-tax salary, reducing your taxable income.

The mechanics involve your employer making lease repayments to the finance company directly from your gross pay, before income tax is deducted. This reduces the salary you’re taxed on. If you earn $90,000 and your novated lease costs $10,000 per year, you’re only taxed on $80,000. The higher your marginal tax rate, the more you save.

A fully maintained novated lease also bundles running costs (fuel or charging, registration, tyres, insurance and servicing) into the same pre-tax deduction, which simplifies budgeting considerably and extends the tax benefit beyond just the purchase price.

There is also a GST saving worth noting. When a novated lease provider buys the vehicle on your behalf, they purchase it as a business transaction and can claim back the GST. That saving is typically passed through to you, effectively reducing the vehicle’s cost by around 9 per cent before the lease even starts.

The EV Factor: The Biggest Change in Years

The most significant development in novated leasing right now is the federal government’s FBT exemption for EVs. Since July 2022, eligible battery electric vehicles and hydrogen fuel cell vehicles have been exempt from Fringe Benefits Tax, provided the vehicle’s value sits below the luxury car tax threshold of $91,387 for the 2025/26 financial year.

For a petrol or diesel vehicle, Fringe Benefits Tax is ordinarily calculated at 20 per cent of the car’s base value per year, which significantly eats into the tax benefit of the lease. For a qualifying EV, that cost disappears entirely. Popular FBT-exempt models include the Tesla Model 3, BYD Atto 3, BYD Atto 2, Hyundai Ioniq 6, Kia EV6 and MG ZS EV.

One important update: plug-in hybrid vehicles (PHEVs) lost their FBT exemption for new agreements entered into from 1 April 2025. If you were considering a PHEV for this reason, the numbers now look considerably less attractive.

An illustrative comparison from WageCalculator estimates that an employee earning $120,000 who packages a $65,000 EV on a five-year lease could save around $7,860 per year compared to buying the same car with an after-tax income. These figures vary substantially depending on your salary, the vehicle cost and the structure of your lease, so treat them as directional rather than definitive.

The Risks of a Novated Lease

The residual payment is the most commonly misunderstood aspect of novated leasing. At the end of your lease term, you owe a balloon payment typically set at between 25 and 40 per cent of the vehicle’s original price. This is not optional, and if the car’s market value has fallen below the residual (which is not uncommon), you may end up paying more than the car is worth.

Job changes also create complexity. If you leave your employer, the lease comes with you. Your new employer needs to agree to continue the arrangement. If they don’t, you pay the lease costs yourself from after-tax income, which erases the tax benefit and typically makes the arrangement more expensive than a standard car loan.

The effective interest rate on novated leases in 2026 typically sits between 8 and 12 per cent per annum. That is competitive in the current environment, but worth comparing carefully against car loan rates available to you directly before signing.

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Salary Packaging: Who Actually Benefits Most?

Salary packaging is the broader arrangement that includes novated leases as one component, and its value varies enormously depending on which sector you work in.

For most private sector employees, salary packaging a car through a novated lease is the main available option. The tax benefit is real but is limited to the pre-tax payment structure described above.

Where salary packaging becomes genuinely exceptional is for workers in certain non-profit and public sectors. Public hospital employees and ambulance service workers can package up to $9,010 per year in everyday living expenses (mortgage repayments, rent, groceries, utilities) completely free of Fringe Benefits Tax. Workers at charities and Public Benevolent Institutions can access an even higher cap of $15,900 per year.

A nurse earning $90,000 who maxes out the $9,010 living expenses cap can, according to WageCalculator estimates, take home an additional $2,883 per year in post-tax income. That is before adding any novated lease arrangement on top. Workers at charities with access to the $15,900 cap can save over $4,000 annually.

If you work in healthcare, community services, aged care or the not-for-profit sector and are not currently salary packaging, you are very likely leaving significant tax savings on the table each year. Over 70 per cent of healthcare workers already take advantage of salary packaging, according to Smart’s figures.

Private sector workers outside these categories still have access to novated leases and some FBT-free benefits (like work-related devices), but the headline caps for living expenses do not apply.

Comparing the Three Options: A Quick Summary

The right answer depends entirely on your situation, but there are some broad patterns:

Car subscriptions suit people who need flexibility above everything else: short tenures, people new to Australia, those who don’t want to be tied to a vehicle or deal with depreciation risk. They are the most expensive option per kilometre over the long run.

Novated leases suit employees on reasonable salaries who have a cooperative employer and plan to stay in their job for the lease term. The EV FBT exemption makes them particularly attractive for anyone considering an electric vehicle. They require more forward planning and carry genuine risk around residual values and job changes.

Broader salary packaging suits workers in healthcare, not-for-profit and some government roles who can access FBT-exempt living expense caps. This is where the mathematics are most clearly in the employee’s favour, and where the savings are most consistent regardless of what car you drive.

None of these is a simple, universal win. All three involve trade-offs in flexibility, commitment or complexity. Before entering any of these arrangements, it is worth running the actual numbers against your salary, driving habits and employment circumstances, and getting independent financial advice if the sums involved are significant.